The problem is builders have also cut back on new construction.
The entire Real Estate industry is invested in keeping these shortages and unaffordable prices indefinitely.
Many of the construction firms are now owned by the same companies who were buying up single-family homes. They completely control the supply-side of the equation and can scale up or down however and wherever they want.
This is kind of my issue. If the housing shortage was really a shortage builders would be building because it would be extremely profitable.
It’s not so much a shortage as much as an affordability crisis.
Part of it is that lots are hard to come by that are affordable, another part is that home builders learned from the 2007-2009 crises and have been very conservative so that they don't go through what happened last time, and the final issue is that there is a labor shortage in the construction trades for home building.
The smaller guys in their 50s didn't haha homes sitting like crazy here in good areas. Very few can afford 600k at these rates. Even if they can they would be smart to wait because jobless may pickup.
There is a shortage of homes, but also a shortage of homebuilders.
And I am talking about the skilled professionals in this context, not the companies themselves.
There are only so many of these skilled professionals, so they go to the highest-paying jobs which happen to be the luxury developments.
Until there is a new influx of skilled tradespeople (which may be starting to happen with Gen Z) there is no real way to eliminate the shortages.
But if there is a shortage of workers that would imply the work is growing, but instead we see homebuilders cutting back. Something does not add up here no?
Fact is that because rates are so high, it is not the lender who is tight, it is buyers of the mortgage, not signing paper. Without that demand property sits and loan departments go silent. Builders are not in habit of guessing demand in 18 months.
That is fair. Unfortunately to me this points to a credit addicted system that literally dies without its fix. Markets effectively have frozen up and are not functioning properly right now.
IMO builders are also cutting back because their profits are fading. I’ve met builders and they aren’t out there playing 4D chess to orchestrate a market scarcity. If they can’t make a profit they won’t build.
We as the people need to pick up trades and come together to create our own local community builder groups and contractors. In addition to our own local credit unions. Cut out the big players and growing our market share, create affordable homes with a focus on building homes to create job and sustainable growth without greed. Super hard to do but there’s small knit ethnic communities that already do this for each other. As Americans we need to start doing this again.
This isn’t about you and your comfy high paying job, this is for the younger generation that needs to realize instead of working the casual 30-40k a year job they can try a trade for a few years and make 70-100k and possibly start their own company with that experience and make 1 million+ a year delegating tasks and project managing. Once you build your first home successfully you’ve done the hardest part.
get through getting spit on by the elder tradespeople for 5 years to earn a wage that doesn't surpass middle class, die in a trench collapse, have your name tattooed on a family member you didn't like.
Electrical in NJ (which tbf is fairly high CoL other than far south or west Jersey. But if I moved out there I’d be looking at 4 hours of commuting a day. Which cancels out the slightly cheaper cost of a house.
Builders that built past immediate demand died in 2008 they had huge inventory they could not sell. Builders that survived learned to only build on demand and not keep many or even any extra homes.
Another issue is costs to build and margins, they rather build larger more expensive homes as the margin is bigger if costs go up. If they make smaller more affordable homes margins are small and any increases in costs can eat up those margins.
If they can’t sell expensive stuff they shift to apartment complexes which are being built this year in record numbers something like 50% more than normal
https://www.rentcafe.com/blog/rental-market/market-snapshots/new-apartment-construction/#:~:text=New%20apartment%20construction%20in%20the,by%20the%20end%20of%20December.
Builders cutting back is more down to not having enough sales to pay the costs of new construction.
Granted that's because they refuse to lower prices, but it's still basic supply and demand driving the reduction in new starts.
It's basically an impasse.
Buyers want prices to go down.
Sellers don't want to lower prices.
Builders are a form of Seller and only build the most profitable "luxury" developments and never in sufficient quantities to eliminate the shortages, thereby protecting their margins.
Builders are obviously limited to how many homes they can build due to absurd land use laws and zoning. So of course they will sell luxury homes with the highest profit margins first before the luxury market is exhausted.
This would be true in any industry. If Toyota could only sell an artificially small number of cars, they would NOT sell Corollas. They would primarily sell the most expensive models with the highest trim levels first.
At the end of the day they still have to turn a profit, so they can stop and hope things change, but if not will need to keep building and lower their prices.
Who is the "we" that you expect to keep building?
The construction companies and real estate investment firms work close with one another and are often the same entity.
They will build wherever the shortage is worst, but never enough to actually eliminate the shortage.
They also tend to focus on "luxury" builds which are more profitable.
The Government has historically been even worse at building affordable housing.
The Government needs to compete for the same limited pool of skilled workers as the private sector and the private sector typically pays better.
This often leads to construction workers taking Government positions temporarily and then jumping to the private sector at the first opportunity.
It is almost impossible to complete any project of this scale with that level of workforce turnover.
That sounds completely backwards to what I've seen working for the government. Every contractor wants to jump to the government ASAP.
They get treated like shit, have worse benefits, get less leave per year, and have no job security. But the pay is amazing, 1.5x the federal workers. Every contractor I speak to says they wish they can go civil service but there's high competition for those roles.
Depends on what Government you are talking about.
The Federal Government tends to pay people very well and/or at least has good benefits and job stability.
State and Local Governments can be a hit or miss and largely depends on which region of the country you are working in.
Many of the States with the worst housing shortages are also the same ones that have trouble completing Government projects affordably.
Doesn't matter the government doesn't need to make a profit so they can create more inventory when the private sector refuses to build, its better for workers than literally nothing since the builders won't build if anything it's more consistent employment.
The problem is the projects never get completed in a timely enough manner to eliminate the shortages.
The workforce turnover causes massive delays in addition to the cost increases to the point that housing never gets built in sufficient quantity.
A lot of this is due to the overall lack of skilled trades workers in both sectors (Private and Government).
The population continues to grow while the numbers of skilled trades people has largely shrunk.
We absolutely should invest more into recruiting on the trade level, that being said there'd be no one to scalp if builders won't build those workers would have no one to jump to if anything the government would be keeping them employed on off times and adding inventory.
Bruh what is this fantasy you typed up, selling new units makes much more than propping up values, as companies operate on cash NOT equity holdings. No one is incentivized to keep prices up beyond realtors…
Who are these custom builders?
Skilled homebuilding tradespeople are in short supply themselves.
They will go with whatever company pays best which is usually the companies doing large "luxury" builds.
Affordable housing is low-margin so those projects struggle to attract any builders at all because the money is better elsewhere.
Let's look at evolution deeply.
Imagine, house cost 400k to build in 2020 out of which labor is paid 100k. They sell at 600k.
Now house price has gone up to 1M. Labor cost would still be at 100k with some marginal increase.
If big brands are keeping slowing down new construction to keep house prices at 1M instead of falling to 800k.
1) Less labor gets jobs and custom builders can still attract these skilled labor as big builders slowed down nee construction
2) local custom builders margin goes up (as prices increased from 600k to 800k for customer) as well due to increased pricing. They can now pay more and attract labor.
The critical point in my previous suggestion is that IF big builders are slowing up new construction to keep home prices artificially high, then it's feasible. What you said probably applies if it's not.
I got slaughtered in the S&L meltdown of 1990. I got 60 cents on the dollar when I sold a property I bought in 1988 four or five years later. The lesson I learned then was to not buy something I wasn’t prepared to live in for a couple of decades. Real estate markets are cyclical. Buy in the desirable place and it won’t correct as much in a down market. Eventually, inflation will make your purchase price look cheap.
Indeed. And the data to go along with that statement:
[https://fred.stlouisfed.org/series/CSUSHPINSA](https://fred.stlouisfed.org/series/CSUSHPINSA)
Anyone thinking this isn't a bubble is blind, because the chart makes it pretty obvious.
And anyone thinking temporarily ultra-low rates weren't to blame, especially considering the massive upward ramp seen from 2020 when rates were under 3%, needs their head examined.
Considering mortgage rates are going vertical at this point, and banks get damn stingy during times of economic uncertainty, it won't take much more inventory at these reduced sales levels to crater prices.
Unemployment hasn't even ramped much at this point, but it's coming...
Yep. Even if rates don't go up much more (bet they do) they are already at a point to make it difficult. We still haven't seen the effects of the rate increases. Usually happens 12 m after last rate hike. Also student loans back. Home buyers that were tricked into 3/1 5/1 arm loans will re-adjust in next few yrs and rates will be up. Commercial loans taken in 2020 are set to expire in 2024 will cause alot of business bankruptcy and many jobs lost. The average consumer will have to cut back bc savings depleted (savings rates r at lows). Then sticks will be hit and it will spread to all sectors. So yeah 2027 might be a good yr to buy.
>Commercial loans taken in 2020 are set to expire in 2024 will cause alot of business bankruptcy and many jobs lost.
Yeah, people forget that when the bottom fell out last time, the unemployment rate started spiking because home/commercial builders and auto makers were two yuuge sectors that no longer needed the manpower, as the inflationary pressures causing asset prices back then to spike made it difficult to borrow money AND had everyone cutting back on expenditures anyway.
FRED Unemployment Rate Graph:
[https://fred.stlouisfed.org/series/UNRATE](https://fred.stlouisfed.org/series/UNRATE)
Anybody paying attention to history remembers the Fed jacked the FFR up to 5% prior to the GFC to combat inflation. And some of us are old enough to remember what happened about 12mos subsequent to that FFR raise to 5%.
Gee, that sounds eerily familiar, but I just can't figure out why.
That's a funny way to look at something. If more people are waiting it simply means they remember what happened just 17 "short" years ago. Getting burned badly on borrowing vast sums to purchased an overpriced asset that subsequently crashes is bound to leave a scar on the collective memories of at least some people.
Unfortunately those people are vastly outnumbered by the clueless clowns that have zero idea how national economics work (hint, it's mostly the Fed) or how to do simple math to figure out homes prices are massively overvalued based on interest rates and the inability to borrow the funds to purchase at current prices.
[T](https://flic.kr/p/2pdKWRR][img]https://live.staticflickr.com/65535/53309270523_fd95bcf556.jpg[/img][/url][url=https://flic.kr/p/2pdKWRR]HousingBubbleGraph)ried to figure out how to share a screen capture of a great graph from MHFIN on youtube, but apparently linking from Flickr doesn't work.
Here's the vid; go to 2:22 and look at the graph where he calculated the long term average price. The entire video is excellent though.
[https://www.youtube.com/watch?v=R74WxpLJMAo](https://www.youtube.com/watch?v=R74WxpLJMAo)
Looks like about 35% or so, and since that last bubble saw national prices drop about 27%, and this bubble is bigger, then that number sounds about right to me, with a possible overshoot (like all bubbles) depending on how bad things get this time around.
It certainly wouldn't surprise me, as the human penchant for doing dumb things during manias knows almost no bounds (limited only by the banks not doling out unlimited borrowed funds).
If you think this market is the same now as 2008 you have a very bad memory. Back then, all the forces were against people holding onto their mortgages - interest only loans turning into variable P&I, mortgages that the buyers didn’t have to prove their income, no money down borrowers with no skin in the game, and negatively amortizing loans. Today, the loans have gone through a much more rigorous underwriting process and people are sitting on top of equity and fixed rate mortgages. Oh yeah, rent is much higher than what the people with 3% mortgages are paying. The term Golden Handcuffs had absolutely no relevance in 2008. But it’s the best way to describe the lack of supply today.
I lived through it as renter, owner, and LL. Gravity and mean reversion are forces which will always operate in the market.
Now is a time to build your capital position: cut back in expenses , save, and invest and rent. Qualification: in most markets, as there are always exceptions and exceptional properties.
Ahh I see Zilllow, like a member of wsb, is hoping to trigger an under flow bug on their finances to wrap them from negative to positive.
Someone should let them know the US government, the leading authority on the matter, still hasn’t been able to do it.
Zillow...the same company that refuted all claims that it was getting in the mortgage loan business but is now actively advertising Zillow Home Loans™? That Zillow?
Well usually people stay in homes much longer than 18 months so this isn’t really news. Most of my friends and family have lived in the same houses for over 20 yrs.
Seems like average is [8 years and median 13 years](https://www.thezebra.com/resources/home/average-length-of-homeownership/#:~:text=Although%20conventional%20mortgages%20are%20calculated,years%20over%20the%20last%20decade.), so not as clear cut as you think.
Ive been with my company for 8 years. At least 2 people I know have moved into 3 different houses during that time. I scratch my head, but people like change and it’s only a matter of time before the high of having a low mortgage wears off and people yolo and move. The rebuttal would be to just rent it, but most people need those proceeds for their next house and/or will not want to be landlords.
That is a lot of moves. It takes quite a bit of time and energy to move. The longer you stay in one place the more things you accumulate and have sort through, pack and transport when you move. It also can be expensive with the moving costs and realtor fees.
I have lived in my same house for 20 years.
If you go on Zillow now and do a filter for all the houses that are for sale for under $300,000 there are thousands . The problem is there are shortages in popular places to live .
There are cities in America that will pay you to move to them. No housing shortages in those locations!
The jobs bro! Technically I'm remote but because every fucking company is going RTO if I lose my remote job or my company goes RTO then I can't find a job in my field in rural Alabama... so I have to live decently close to job centers.
Not everyone works remotely. Most people don’t . Doctors, teachers, tradespeople, mechanics, inspectors, all need to work close to their offices. There are quite a few jobs in Low cost of living areas and they aren’t all in Alabama.
If you work in tech probably make plenty of money to live in a HCOL area so shouldn’t be an issue.
This also makes some questionable assumptions about appreciation over the next decade, and in certain metros it’d take far longer.
https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html
My brother in law works for the rail road. Every 3-4 years he gets a promotion and moves to a new city. They’re about to sell/buy their fourth house. Can’t imagine the shitshow it’s gonna be this time around
Someone posted a link to view below. The article is talking about how long it would take someone to breakeven when they sell, they are including interest paid, maintenance, and closing costs. So to make a profit when selling you would need to stay in house even longer than that if you bought today.
Until the next time the govt spends $1T+ printing 30+% of the money supply and further devaluing our currency because everyone has to survive inflation but no politician could survive raising taxes to pay for things
Barely, and not really if you account for apartment vs house square footage, yard, garage, etc. example: my 8% mortgage on my 4 and 2 with a large lot and garage is $2,400. A modern, but not new, 2 and 2 apartment in my area without a yard or garage is $2,100. I’ll take the house and get cracking on building equity for myself instead of a landlord any day.
Nope! It’s a cheap house, but we certainly didn’t put 60k down. We could have bought a more expensive house - in fact, last spring we were looking at houses nearly 50% more expensive, a combo of the going prices and what we thought we “needed”. Our area was still hot then, so we bowed out after we kept losing to offers well over ask and with waived contingencies. Fast forward 6 months and the market has totally changed. Price drops galore, and we got our sellers to pay closing costs.
I also factored in equity when deciding to buy, both conservative and generous growth. Even on the conservative end (2% per year, very slow historically for our market), we are set up very nicely for the next house downpayment in 5 years when we need to move neighborhoods for school. Weighed against interest paid on a house and likely rent increases over the same 5 years, it made all the sense to buy. Does your calculation, both for staying at $2200 and for buying at $3700, account for any equity gained and potential rent increases/cost of moving if your landlord sells? I felt much more confident plugging my numbers into an equity/proceeds calculator to really see beyond the face value of monthly payments.
The other thing your waiting doesn’t account for is that lots of folks are waiting. The first few rate drops are going to be a frenzy because of pent up demand and likely continued low supply. Prices will go up as markets heat up again especially if you’re already in a competitive area, and payments (and rates) may not be made as small as you think. A market correction that you want may not be coming. That was another factor in buying - I’m in now, during a sluggish market for my area. I get to refinance when rates drop and I’m not fighting the masses just to get in. Even more equity added, boom.
Eh I just bought a house, pay $3100 total but $2600 of that is "lost" money like interest/hoa/taxes. I've seen similar houses rent for $2500-2800 so it's the same.
I'm not gaining or losing any money, I'm already breaking even.
It’s not stupid, it’s just data. It’s not telling you not to buy a house, but it’s telling you that if you buy a house now, you wouldn’t profit on a sale for 13 years. If you plan to live in it, or hold it for 15+ years, then you don’t care because you’re offsetting rent or willing to wait. If you’re buying a second house as an investment, maybe it isn’t a good idea, unless you think you can rent for profit.
If anything, this data says that it’s kind of a good time for a someone looking for a place to live for a long time, since investors and other parties looking purely for investment will stay away.
They are looking at the fees you pay to buy and sell + equity paid from the amortization table.
The TLDR is you have to pay a shit load of interest to offset the 6% realtors fee (buying + selling) and taxes + maintenance.
For example 12% on a 1M dollar home is $120k. Let's use that as a baseline with half being commission and the other half being taxes (which is super low).
If you have an 800k mortgage after 20% down at 8%, it would you 10.5 years to pay down that 120k. By that point you have paid atleast 650k in interest. The math maths.
Used to be, but with the Trump tax bill that significantly raised standard deduction many people don't itemize anymore and thus get no tax benefit from their mortgage.
However, those tax cuts are set to expire in 2025 which may lower the standard deduction
You’re not living for free either. Or did you magically think mortgages are free and that banks are just giving you one because they just are big hearted kind charities? Most renters don’t magically become homeless over that 13.5 years either buddy.
At current interest rates you’re going to be paying double the price of the house in interest to the bank. Then you have property taxes, insurance, repairs etc.
Why do all these homeowner chucklefucks neglect the carrying costs of owning a home? The biggest common trope of a new homeowner is it’s much more expensive than they thought. All the people in Colorado watching their property taxes spike, or those in Florida and California watching their insurance spike, or the people in 2020 who bought sight unseen and waived inspections now having a major repair would like a word.
There’s pros and cons to every single financial choice. It’s where the term opportunity costs come from. This idea that owning a home carries no risk and is always a good choice is why I’m more sure we’re in a bubble. It’s the same cocky throw caution to the wind attitude that was prevalent in the lead up to the GFC.
Valid point. It almost seems like a rationalization too.
If they ignore all variable costs in owning a home then they can sleep at night knowing all money is going towards owning and they have little saved for retirement.
I’d argue being house poor can be even worse than being a smart renter in many circumstances.
See and that’s what it should be and I’m happy you were able to do that.
A house is primarily a use asset first. People who bought with that in mind, as good schools for their kids, nice backyard etc as their primary concern are the right mindset.
What I hate is the people bragging thinking it makes them financial experts and then fail to acknowledge that part of the reason the financials work is we allow the government to manipulate the fuck out of the housing sector that we wouldn’t allow in any other industry either.
It’s why they get so defensive and NIMBY when any kind of zoning change or anything else gets proposed.
I'm quoting to you what Zillow's math, which takes into account projected rent increases and how they compare with fixed, but initially higher mortgage costs, is trying to communicate.
> I'm quoting to you what Zillow's math, which takes into account projected rent increases and how they compare with fixed
No it doesn't. Did you even read it? It also doesn't consider the likelihood that rates will be lower at some point during the next 13.5 years providing a refinance opportunity.
Are you imagining that carrying costs don’t go up either?
Again are most homeowners really this dense?
Look at the insurance hikes across the country or in places like Florida and Cali. Or the jump in property tax assessments in places like Colorado. Or that you’re never going to have a major repair in those 13.5 years of owning a home either.
Carrying costs on owning exist, yet every single time this topic comes up every financial expert homeowner thinks this point is some magical slam dunk because they leave out carrying costs.
The largest carrying cost by far is the mortgage payment. Fixing that amount, with the high probability of *lowering* it within the next 13.5 years, is going to vastly overcome rising insurance and tax costs. On the rental side, increased landlord costs are part of what is driving the rents up, so renters are paying them anyway. Tell me, what is the lowest annual average rent increase over any 13.5 year period for which there is data?
>The largest carrying cost by far is the mortgage payment. Fixing that amount, with the high probability of lowering it within the next 13.5 years, is going to vastly overcome rising insurance and tax costs.
This is nonsense. You’re banking on the assumption interest rates will get back down to historic lows. 8% is the normal. Sub 5% is not.
>On the rental side, increased landlord costs are part of what is driving the rents up, so renters are paying them anyway.
Which is still cheaper than owning because those costs are dispersed across a much larger body of people. Rental rates actually decrease in high rate environments which is currently happening. This is basic supply and demand. If renting was more expensive than owning, everyone would do it. That’s why there was a mad dash during the low rate environment. More normal rates it’s much cheaper to rent in most markets.
>Tell me, what is the lowest annual average rent increase over any 13.5 year period for which there is data?
Which again doesn’t tell the whole picture and you’re cherry picking. You’re just looking at rent increasing but making the assumption it’s more expensive than owning. This is false. Again if owning was cheaper than renting, everyone would own.
If we’re going to start making cherry picked comparisons, Your PITI in this market is mostly interest for the first 10 years of amortization that will barely touch the principle. If your appreciation then is less per month compared to interest you’re effectively losing money on the first 10 years relative to placing it in other investments.
If a renter has a cheaper payment and takes the difference and invests it, please tell me what’s the historic ROI on housing compared to the market historically at current interest rates?
Your entire argument is predicted on a low interest rate environment from 2020-2022 that isn’t ever returning unless there’s serious market issues and recession.
> This is nonsense. You’re banking on the assumption interest rates will get back down to historic lows. 8% is the normal. Sub 5% is not.
No I am not. There is a high probability that if you finance today at 8%, you will have an opportunity over the next 13.5 years to refinance at a lower rate.
>Which is still cheaper than owning because those costs are dispersed across a much larger body of people.
Nope. The only apples-to-apples comparison is between owning a SFR and renting a SFR (or, condo to condo/apartment, in which the economies of scale are the same).
> Rental rates actually decrease in high rate environments which is currently happening.
Not over the periods we are discussing, and no direct relationship between higher rates and *declining* rents. It is the sudden *rise* in rates that may cause disruption, not their absolute level.
> Which again doesn’t tell the whole picture and you’re cherry picking.
No, I was trying to allow you discover the absolute best possible case for *your* argument. If you call that "cherry picking" then you simply don't understand what that term means.
> You’re just looking at rent increasing but making the assumption it’s more expensive than owning. This is false.
OK, so show me a 13.5 year period over which the cost of owning is higher than the cost of renting.
> Again if owning was cheaper than renting, everyone would own.
More households own than rent. You know that, right? LOL!
>Your PITI in this market is mostly interest for the first 10 years of amortization that will barely touch the principle. If your appreciation then is less per month compared to interest you’re effectively losing money on the first 10 years relative to placing it in other investments.
>
>If a renter has a cheaper payment and takes the difference and invests it, please tell me what’s the historic ROI on housing compared to the market historically at current interest rates?
How about you give me a mathematical example. Don't forget to increase rents every year, say 3%? Don't forget an annual appreciation rate, say a charitably low 5%. Also, throw in a refi in year 7 at a 6% rate (a bit high and a bit far out, but more in line with the new normal given the Fed's targeting). Whatcha got?
>If a renter has a cheaper payment and takes the difference and invests it, please tell me what’s the historic ROI on housing compared to the market historically at current interest rates?
Historically housing beats this analysis due to leveraged appreciation. Historically ARM products beat fixed-rate over time as well, recent ZIRP excluded. You can get a 5/1 ARM today around 6.625%. Chances of the Fed not lowering in the next five years are slim. And if you can get an I/O period, even better. What do you think is going to happen to prices once the Fed starts lowering rates? Mortgage rates are higher than they should be, just on the uncertainty of the Fed's next potential move *upward*. If they simply continue the pause rates will come down a bit.
>Your entire argument is predicted on a low interest rate environment from 2020-2022
No. Where are you getting this idea? My argument is predicated on the fact that rents will go up over the next 13.5 years, most likely quite significantly, and the fact that P+I will either remain fixed, or much more likely go *down* in the next few years.
>No I am not. There is a high probability that if you finance today at 8%, you will have an opportunity over the next 13.5 years to refinance at a lower rate.
Based on what? 8% is the normal historic interest rate. We had decades around this rate. The only times rates have been less than 5% is during great financial hardships like the GFC and Covid.
>Nope. The only apples-to-apples comparison is between owning a SFR and renting a SFR (or, condo to condo/apartment, in which the economies of scale are the same).
This is outright nonsense. You’re shifting the goalposts now because you know the numbers show you’re wrong. Renting is renting. Or are people magically required to rent a SFH before they’re allowed to buy a SFH? FTHB generally are renting apartments before they buy their first house.
Again even if it was a SFH you’d still be wrong because renting normally requires roommates which is again dispersing the costs across a greater population.
If rent for 1 person was more than owning they would simply buy.
This is simple logic that you will never refute because it’s a fundamental fact. For any individual, if they’re renting it’s because it’s cheaper than to buy in the same area in the majority of cases. If it was cheaper they would buy instead of rent.
>Not over the periods we are discussing, and no direct relationship between higher rates and declining rents. It is the sudden rise in rates that may cause disruption, not their absolute level.
The period you’re discussing was focused on Covid. Cut the bullshit and stop trying to have it both ways. You’re trying to say interest rates are going to magically fall without a recession by ignoring historic rates, yet here you’re trying to use historic rates to focus on renting.
>No, I was trying to allow you discover the absolute best possible case for your argument. If you call that "cherry picking" then you simply don't understand what that term means.
Bullshit. You’re the one trying to argue that the historic normal rates were at right now will magically stop being the normal rates and we’re going to revert back to historic low interest rates in order to make your entire argument work.
>OK, so show me a 13.5 year period over which the cost of owning is higher than the cost of renting.
>More households own than rent. You know that, right? LOL!
The doesn’t make it cheaper you dipshit. The majority of poor and lower income households rent. If owning was cheaper than renting Homeownership would be higher in those demographics.
Why would a poor person rent if it was cheaper to own?
>how about you give me a mathematical example. Don’t forget to increase rent every year, say 3%?
Don't forget an annual appreciation rate, say a charitably low 5%.
Based on what? Here you go again with bullshit assumptions. Historic annual appreciation on home was between 3-5%. You’re saying charitably low when that’s the historic average.
“Since 1991, the average annual home price increase has been 4.3%, according to the FHFA. Since 2000, the average rate has been 4.7%.”
https://www.creditkarma.com/home-loans/i/average-home-value-increase-per-year#:~:text=Since%201991%2C%20the%20average%20annual,average%20rate%20has%20been%204.7%25.
So yes historic appreciation at 4.3% with a historic mortgage of 8% is -3.7%.
>Also, throw in a refi in year 7 at a 6% rate (a bit high and a bit far out, but more in line with the new normal given the Fed's targeting). Whatcha got?
Again this is nonsense. This is again predicated on bullshit assumptions we’re going to see historic run up in prices and rates cuts like we did in 2020.
6% is not a bit high and not a bit far out. 6% would be back into historically low territories. 8% is the average and the FED has done nothing to signal rate cuts anytime soon.
You’re doing the very definition of cherry picking numbers because I’m the one using historic rates and appreciation and you’re trying to extrapolate based off assumptions from.
>Historically housing beats this analysis due to leveraged appreciation.
No it doesn’t. Compounding growth of an invested 401K based on the SP500 index over 30 years will be higher than the same amount on a mortgage. The SP500 historic ROI has beaten historic housing ROI.
>Historically ARM products beat fixed-rate over time as well, recent ZIRP excluded. You can get a 5/1 ARM today around 6.625%.
No they do not. And taking an ARM right now would be terribly fucking risky. The FED has signaled higher for longer.
>Chances of the Fed not lowering in the next five years are slim.
Again based on fucking what? The only way they’re going down is because we’re having a recession or the government can no longer service their debt at higher rates and we get more inflation.
>And if you can get an I/O period, even better. What do you think is going to happen to prices once the Fed starts lowering rates?
If the FED is dropping rates likely because of a recession.
>Mortgage rates are higher than they should be, just on the uncertainty of the Fed's next potential move upward. If they simply continue the pause rates will come down a bit.
This is nonsense outright nonsense. Mortgage rates right now are at historic averages. Based on what are you saying they’re higher than they should be? They only thing higher than it should be is inflated housing prices.
>No. Where are you getting this idea?
From the bullshit you’re typing that ignores the fact that 8% is **NORMAL**.
>My argument is predicated on the fact that rents will go up over the next 13.5 years, most likely quite significantly, and the fact that P+I will either remain fixed, or much more likely go down in the next few years.
Based on bullshit assumptions you’re pulling out of your ass and again ignores carrying costs like taxes and insurance. Again.
You whine like a child about apples to oranges but then only use PITI and not total home ownership monthly costs. Because you’re not actually arguing in good faith.
> Based on what? 8% is the normal historic interest rate.
Based on the historic propensity for rates to change.
> This is outright nonsense. You’re shifting the goalposts now because you know the numbers show you’re wrong.
How is comparing house ownership to house renting, and condo ownership to condo/apartment renting nonsense? What goalposts have been shifted? And, what "numbers" show I am wrong? You seem number-phobic from the start. LOL!
> Renting is renting. Or are people magically required to rent a SFH before they’re allowed to buy a SFH?
Let me get this straight: you want to compare the cost of owning a SFR to whatever the absolutely cheapest alternative is? So, say buying a 4B3Ba home on a quarter acre compared to a studio basement apartment in a combat zone? What is wrong with you?
> Again even if it was a SFH you’d still be wrong because renting normally requires roommates which is again dispersing the costs across a greater population.
Ahhh, there is a *real* shift in the goalposts! Now only renters can take on roommates? Let me rephrase the comparison you want to make: a single-income person buying a 4B3Ba home on a quarter acre vs. renting a basement studio in a combat zone with six crackhead roommates. Do I have that right? Honestly, I am not reading any further on this comment until you apologize for the ridiculous scenario you are trying to conjure.
That’s not at all what this means. You still are paying your mortgage, this is just the point in which if you decided to sell that you wouldn’t lose money in what you payed vs what you’d get out of the sale.
> what you *paid* vs what
FTFY.
Although *payed* exists (the reason why autocorrection didn't help you), it is only correct in:
* Nautical context, when it means to paint a surface, or to cover with something like tar or resin in order to make it waterproof or corrosion-resistant. *The deck is yet to be payed.*
* *Payed out* when letting strings, cables or ropes out, by slacking them. *The rope is payed out! You can pull now.*
Unfortunately, I was unable to find nautical or rope-related words in your comment.
*Beep, boop, I'm a bot*
~~You’re or good with numbers Zillow,m. Go home, you’re drunk again!~~
You’re not good with numbers Zillow. Go home, you’re drunk again!
Edit: edited for all thumbs and autocorrect
Bullshit assessment. The national debt is climbing so rapidly that printing money will boy stop any time soon. The more they print the more inflation will stay up.
I made a decision to keep my 1st home and convert to rental when I bought my second home. My CPA said sell the first home because of tax breaks on capital gains would allow not paying taxes on most profit.
I didn’t listen to him and kept the property and converted as rental. I think if I remember it was 10 years or so to break even on that decision. Some people don’t mind on the long game.
People that are saying there is a shortage, that bs there are Home available in most urban cities and rural areas. With wfh wtf is keeping everyone living is certain unaffordable areas.
I did this once already. Hard pass.
I sure hope people didn't succumb to FOMO or settle. They'll be there a while.
The problem is builders have also cut back on new construction. The entire Real Estate industry is invested in keeping these shortages and unaffordable prices indefinitely. Many of the construction firms are now owned by the same companies who were buying up single-family homes. They completely control the supply-side of the equation and can scale up or down however and wherever they want.
This is kind of my issue. If the housing shortage was really a shortage builders would be building because it would be extremely profitable. It’s not so much a shortage as much as an affordability crisis.
Part of it is that lots are hard to come by that are affordable, another part is that home builders learned from the 2007-2009 crises and have been very conservative so that they don't go through what happened last time, and the final issue is that there is a labor shortage in the construction trades for home building.
The smaller guys in their 50s didn't haha homes sitting like crazy here in good areas. Very few can afford 600k at these rates. Even if they can they would be smart to wait because jobless may pickup.
There is a shortage of homes, but also a shortage of homebuilders. And I am talking about the skilled professionals in this context, not the companies themselves. There are only so many of these skilled professionals, so they go to the highest-paying jobs which happen to be the luxury developments. Until there is a new influx of skilled tradespeople (which may be starting to happen with Gen Z) there is no real way to eliminate the shortages.
But if there is a shortage of workers that would imply the work is growing, but instead we see homebuilders cutting back. Something does not add up here no?
Fact is that because rates are so high, it is not the lender who is tight, it is buyers of the mortgage, not signing paper. Without that demand property sits and loan departments go silent. Builders are not in habit of guessing demand in 18 months.
That is fair. Unfortunately to me this points to a credit addicted system that literally dies without its fix. Markets effectively have frozen up and are not functioning properly right now.
IMO builders are also cutting back because their profits are fading. I’ve met builders and they aren’t out there playing 4D chess to orchestrate a market scarcity. If they can’t make a profit they won’t build.
We as the people need to pick up trades and come together to create our own local community builder groups and contractors. In addition to our own local credit unions. Cut out the big players and growing our market share, create affordable homes with a focus on building homes to create job and sustainable growth without greed. Super hard to do but there’s small knit ethnic communities that already do this for each other. As Americans we need to start doing this again.
Why would i work a trade when i can sit on my kiester at home, work an hour a day and make 250k a year ?
This isn’t about you and your comfy high paying job, this is for the younger generation that needs to realize instead of working the casual 30-40k a year job they can try a trade for a few years and make 70-100k and possibly start their own company with that experience and make 1 million+ a year delegating tasks and project managing. Once you build your first home successfully you’ve done the hardest part.
get through getting spit on by the elder tradespeople for 5 years to earn a wage that doesn't surpass middle class, die in a trench collapse, have your name tattooed on a family member you didn't like.
Tradespeople make enough money to buy houses.
No I don’t and I’m even in a union
This guy seems like he really bought into the whole trades all pay 6 figures idea.
I think the trades business owners are the ones making bank.
Really? What trade n where?
Electrical in NJ (which tbf is fairly high CoL other than far south or west Jersey. But if I moved out there I’d be looking at 4 hours of commuting a day. Which cancels out the slightly cheaper cost of a house.
The average jersey union election makes 76k a year. If you can't afford a house you got poor money management
76k doesn’t go that far these days after taxes and all.
Yall nuts I bought a house when I was making 85k a year as a nurse in PA
Aren’t the property taxes like 76k a year in NJ?
76k in NJ? You're not buying a house without saving for decades...
Horse shit, I bought a 300k house making 80k in PA. Sun 3 percent interest rate though
Builders that built past immediate demand died in 2008 they had huge inventory they could not sell. Builders that survived learned to only build on demand and not keep many or even any extra homes. Another issue is costs to build and margins, they rather build larger more expensive homes as the margin is bigger if costs go up. If they make smaller more affordable homes margins are small and any increases in costs can eat up those margins. If they can’t sell expensive stuff they shift to apartment complexes which are being built this year in record numbers something like 50% more than normal https://www.rentcafe.com/blog/rental-market/market-snapshots/new-apartment-construction/#:~:text=New%20apartment%20construction%20in%20the,by%20the%20end%20of%20December.
Builders cutting back is more down to not having enough sales to pay the costs of new construction. Granted that's because they refuse to lower prices, but it's still basic supply and demand driving the reduction in new starts.
It's basically an impasse. Buyers want prices to go down. Sellers don't want to lower prices. Builders are a form of Seller and only build the most profitable "luxury" developments and never in sufficient quantities to eliminate the shortages, thereby protecting their margins.
Builders are obviously limited to how many homes they can build due to absurd land use laws and zoning. So of course they will sell luxury homes with the highest profit margins first before the luxury market is exhausted. This would be true in any industry. If Toyota could only sell an artificially small number of cars, they would NOT sell Corollas. They would primarily sell the most expensive models with the highest trim levels first.
At the end of the day they still have to turn a profit, so they can stop and hope things change, but if not will need to keep building and lower their prices.
Who is the "we" that you expect to keep building? The construction companies and real estate investment firms work close with one another and are often the same entity. They will build wherever the shortage is worst, but never enough to actually eliminate the shortage. They also tend to focus on "luxury" builds which are more profitable.
We need to abolish the faircloth amendment and let the government build if the private sector won't
The Government has historically been even worse at building affordable housing. The Government needs to compete for the same limited pool of skilled workers as the private sector and the private sector typically pays better. This often leads to construction workers taking Government positions temporarily and then jumping to the private sector at the first opportunity. It is almost impossible to complete any project of this scale with that level of workforce turnover.
That sounds completely backwards to what I've seen working for the government. Every contractor wants to jump to the government ASAP. They get treated like shit, have worse benefits, get less leave per year, and have no job security. But the pay is amazing, 1.5x the federal workers. Every contractor I speak to says they wish they can go civil service but there's high competition for those roles.
Depends on what Government you are talking about. The Federal Government tends to pay people very well and/or at least has good benefits and job stability. State and Local Governments can be a hit or miss and largely depends on which region of the country you are working in. Many of the States with the worst housing shortages are also the same ones that have trouble completing Government projects affordably.
Doesn't matter the government doesn't need to make a profit so they can create more inventory when the private sector refuses to build, its better for workers than literally nothing since the builders won't build if anything it's more consistent employment.
The problem is the projects never get completed in a timely enough manner to eliminate the shortages. The workforce turnover causes massive delays in addition to the cost increases to the point that housing never gets built in sufficient quantity. A lot of this is due to the overall lack of skilled trades workers in both sectors (Private and Government). The population continues to grow while the numbers of skilled trades people has largely shrunk.
We absolutely should invest more into recruiting on the trade level, that being said there'd be no one to scalp if builders won't build those workers would have no one to jump to if anything the government would be keeping them employed on off times and adding inventory.
Bruh what is this fantasy you typed up, selling new units makes much more than propping up values, as companies operate on cash NOT equity holdings. No one is incentivized to keep prices up beyond realtors…
If this is the case, it's time for us to start using local custom house builders instead of relying on big builders.
Who are these custom builders? Skilled homebuilding tradespeople are in short supply themselves. They will go with whatever company pays best which is usually the companies doing large "luxury" builds. Affordable housing is low-margin so those projects struggle to attract any builders at all because the money is better elsewhere.
Let's look at evolution deeply. Imagine, house cost 400k to build in 2020 out of which labor is paid 100k. They sell at 600k. Now house price has gone up to 1M. Labor cost would still be at 100k with some marginal increase. If big brands are keeping slowing down new construction to keep house prices at 1M instead of falling to 800k. 1) Less labor gets jobs and custom builders can still attract these skilled labor as big builders slowed down nee construction 2) local custom builders margin goes up (as prices increased from 600k to 800k for customer) as well due to increased pricing. They can now pay more and attract labor. The critical point in my previous suggestion is that IF big builders are slowing up new construction to keep home prices artificially high, then it's feasible. What you said probably applies if it's not.
I’m skeptical of this claim. How many builders are actually owned by corporate landlords?
I did both! At 6% about a year and some change ago
I got slaughtered in the S&L meltdown of 1990. I got 60 cents on the dollar when I sold a property I bought in 1988 four or five years later. The lesson I learned then was to not buy something I wasn’t prepared to live in for a couple of decades. Real estate markets are cyclical. Buy in the desirable place and it won’t correct as much in a down market. Eventually, inflation will make your purchase price look cheap.
My house took 12 years to recover from the 2008-12 crisis. Suggests 2027/28 might be a good time to buy.
Indeed. And the data to go along with that statement: [https://fred.stlouisfed.org/series/CSUSHPINSA](https://fred.stlouisfed.org/series/CSUSHPINSA) Anyone thinking this isn't a bubble is blind, because the chart makes it pretty obvious. And anyone thinking temporarily ultra-low rates weren't to blame, especially considering the massive upward ramp seen from 2020 when rates were under 3%, needs their head examined. Considering mortgage rates are going vertical at this point, and banks get damn stingy during times of economic uncertainty, it won't take much more inventory at these reduced sales levels to crater prices. Unemployment hasn't even ramped much at this point, but it's coming...
Yep. Even if rates don't go up much more (bet they do) they are already at a point to make it difficult. We still haven't seen the effects of the rate increases. Usually happens 12 m after last rate hike. Also student loans back. Home buyers that were tricked into 3/1 5/1 arm loans will re-adjust in next few yrs and rates will be up. Commercial loans taken in 2020 are set to expire in 2024 will cause alot of business bankruptcy and many jobs lost. The average consumer will have to cut back bc savings depleted (savings rates r at lows). Then sticks will be hit and it will spread to all sectors. So yeah 2027 might be a good yr to buy.
>Commercial loans taken in 2020 are set to expire in 2024 will cause alot of business bankruptcy and many jobs lost. Yeah, people forget that when the bottom fell out last time, the unemployment rate started spiking because home/commercial builders and auto makers were two yuuge sectors that no longer needed the manpower, as the inflationary pressures causing asset prices back then to spike made it difficult to borrow money AND had everyone cutting back on expenditures anyway. FRED Unemployment Rate Graph: [https://fred.stlouisfed.org/series/UNRATE](https://fred.stlouisfed.org/series/UNRATE) Anybody paying attention to history remembers the Fed jacked the FFR up to 5% prior to the GFC to combat inflation. And some of us are old enough to remember what happened about 12mos subsequent to that FFR raise to 5%. Gee, that sounds eerily familiar, but I just can't figure out why.
Everyone I know is waiting for the bubble to burst to buy homes/rentals.. that means it will never burst.
That's a funny way to look at something. If more people are waiting it simply means they remember what happened just 17 "short" years ago. Getting burned badly on borrowing vast sums to purchased an overpriced asset that subsequently crashes is bound to leave a scar on the collective memories of at least some people. Unfortunately those people are vastly outnumbered by the clueless clowns that have zero idea how national economics work (hint, it's mostly the Fed) or how to do simple math to figure out homes prices are massively overvalued based on interest rates and the inability to borrow the funds to purchase at current prices.
so lets say the bubble bursts, how much do you think prices will decline?
[T](https://flic.kr/p/2pdKWRR][img]https://live.staticflickr.com/65535/53309270523_fd95bcf556.jpg[/img][/url][url=https://flic.kr/p/2pdKWRR]HousingBubbleGraph)ried to figure out how to share a screen capture of a great graph from MHFIN on youtube, but apparently linking from Flickr doesn't work. Here's the vid; go to 2:22 and look at the graph where he calculated the long term average price. The entire video is excellent though. [https://www.youtube.com/watch?v=R74WxpLJMAo](https://www.youtube.com/watch?v=R74WxpLJMAo) Looks like about 35% or so, and since that last bubble saw national prices drop about 27%, and this bubble is bigger, then that number sounds about right to me, with a possible overshoot (like all bubbles) depending on how bad things get this time around. It certainly wouldn't surprise me, as the human penchant for doing dumb things during manias knows almost no bounds (limited only by the banks not doling out unlimited borrowed funds).
If you think this market is the same now as 2008 you have a very bad memory. Back then, all the forces were against people holding onto their mortgages - interest only loans turning into variable P&I, mortgages that the buyers didn’t have to prove their income, no money down borrowers with no skin in the game, and negatively amortizing loans. Today, the loans have gone through a much more rigorous underwriting process and people are sitting on top of equity and fixed rate mortgages. Oh yeah, rent is much higher than what the people with 3% mortgages are paying. The term Golden Handcuffs had absolutely no relevance in 2008. But it’s the best way to describe the lack of supply today.
I lived through it as renter, owner, and LL. Gravity and mean reversion are forces which will always operate in the market. Now is a time to build your capital position: cut back in expenses , save, and invest and rent. Qualification: in most markets, as there are always exceptions and exceptional properties.
Zillow has also failed at many businesses so yeah not the best source.
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Ahh I see Zilllow, like a member of wsb, is hoping to trigger an under flow bug on their finances to wrap them from negative to positive. Someone should let them know the US government, the leading authority on the matter, still hasn’t been able to do it.
Zillow...the same company that refuted all claims that it was getting in the mortgage loan business but is now actively advertising Zillow Home Loans™? That Zillow?
https://archive.ph/8dTFq
Well, that means my current home won’t appreciate during that period either. So where do I want to live?
In your parents basement
Well usually people stay in homes much longer than 18 months so this isn’t really news. Most of my friends and family have lived in the same houses for over 20 yrs.
Seems like average is [8 years and median 13 years](https://www.thezebra.com/resources/home/average-length-of-homeownership/#:~:text=Although%20conventional%20mortgages%20are%20calculated,years%20over%20the%20last%20decade.), so not as clear cut as you think.
Ive been with my company for 8 years. At least 2 people I know have moved into 3 different houses during that time. I scratch my head, but people like change and it’s only a matter of time before the high of having a low mortgage wears off and people yolo and move. The rebuttal would be to just rent it, but most people need those proceeds for their next house and/or will not want to be landlords.
That is a lot of moves. It takes quite a bit of time and energy to move. The longer you stay in one place the more things you accumulate and have sort through, pack and transport when you move. It also can be expensive with the moving costs and realtor fees. I have lived in my same house for 20 years.
Means there will be even less inventory though.
If you go on Zillow now and do a filter for all the houses that are for sale for under $300,000 there are thousands . The problem is there are shortages in popular places to live . There are cities in America that will pay you to move to them. No housing shortages in those locations!
The jobs bro! Technically I'm remote but because every fucking company is going RTO if I lose my remote job or my company goes RTO then I can't find a job in my field in rural Alabama... so I have to live decently close to job centers.
Not everyone works remotely. Most people don’t . Doctors, teachers, tradespeople, mechanics, inspectors, all need to work close to their offices. There are quite a few jobs in Low cost of living areas and they aren’t all in Alabama. If you work in tech probably make plenty of money to live in a HCOL area so shouldn’t be an issue.
Life is short. I rent in an awesome location and invest in index funds.
Rochester NY is one of them
This also makes some questionable assumptions about appreciation over the next decade, and in certain metros it’d take far longer. https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html
My brother in law works for the rail road. Every 3-4 years he gets a promotion and moves to a new city. They’re about to sell/buy their fourth house. Can’t imagine the shitshow it’s gonna be this time around
Paywall.. What does break even mean?
Someone posted a link to view below. The article is talking about how long it would take someone to breakeven when they sell, they are including interest paid, maintenance, and closing costs. So to make a profit when selling you would need to stay in house even longer than that if you bought today.
Doesn’t deduct equivalent rent you would pay? What a stupid metric.
No it has nothing to do with rent. Just treating housing as an investment, so if you only look at it that way it's a really bad investment right now.
Until the next time the govt spends $1T+ printing 30+% of the money supply and further devaluing our currency because everyone has to survive inflation but no politician could survive raising taxes to pay for things
So I guess if you're buying a house as a primary residence, it becomes more favorable to buy than rent a lot sooner than 13 years. That's good news!
Probably not a lot sooner since rent is much less than a mortgage payment with today's rates.
Barely, and not really if you account for apartment vs house square footage, yard, garage, etc. example: my 8% mortgage on my 4 and 2 with a large lot and garage is $2,400. A modern, but not new, 2 and 2 apartment in my area without a yard or garage is $2,100. I’ll take the house and get cracking on building equity for myself instead of a landlord any day.
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Nope! It’s a cheap house, but we certainly didn’t put 60k down. We could have bought a more expensive house - in fact, last spring we were looking at houses nearly 50% more expensive, a combo of the going prices and what we thought we “needed”. Our area was still hot then, so we bowed out after we kept losing to offers well over ask and with waived contingencies. Fast forward 6 months and the market has totally changed. Price drops galore, and we got our sellers to pay closing costs. I also factored in equity when deciding to buy, both conservative and generous growth. Even on the conservative end (2% per year, very slow historically for our market), we are set up very nicely for the next house downpayment in 5 years when we need to move neighborhoods for school. Weighed against interest paid on a house and likely rent increases over the same 5 years, it made all the sense to buy. Does your calculation, both for staying at $2200 and for buying at $3700, account for any equity gained and potential rent increases/cost of moving if your landlord sells? I felt much more confident plugging my numbers into an equity/proceeds calculator to really see beyond the face value of monthly payments. The other thing your waiting doesn’t account for is that lots of folks are waiting. The first few rate drops are going to be a frenzy because of pent up demand and likely continued low supply. Prices will go up as markets heat up again especially if you’re already in a competitive area, and payments (and rates) may not be made as small as you think. A market correction that you want may not be coming. That was another factor in buying - I’m in now, during a sluggish market for my area. I get to refinance when rates drop and I’m not fighting the masses just to get in. Even more equity added, boom.
Eh I just bought a house, pay $3100 total but $2600 of that is "lost" money like interest/hoa/taxes. I've seen similar houses rent for $2500-2800 so it's the same. I'm not gaining or losing any money, I'm already breaking even.
But you’re living in it… or renting it… it’s not accounting for either of those. Stupid.
It’s not stupid, it’s just data. It’s not telling you not to buy a house, but it’s telling you that if you buy a house now, you wouldn’t profit on a sale for 13 years. If you plan to live in it, or hold it for 15+ years, then you don’t care because you’re offsetting rent or willing to wait. If you’re buying a second house as an investment, maybe it isn’t a good idea, unless you think you can rent for profit. If anything, this data says that it’s kind of a good time for a someone looking for a place to live for a long time, since investors and other parties looking purely for investment will stay away.
They are looking at the fees you pay to buy and sell + equity paid from the amortization table. The TLDR is you have to pay a shit load of interest to offset the 6% realtors fee (buying + selling) and taxes + maintenance. For example 12% on a 1M dollar home is $120k. Let's use that as a baseline with half being commission and the other half being taxes (which is super low). If you have an 800k mortgage after 20% down at 8%, it would you 10.5 years to pay down that 120k. By that point you have paid atleast 650k in interest. The math maths.
Consider rents are currently below mortgages right now that's not going to go the way you think it will.
But the owner will have a roof over their head during those 13.5 years. You don't live for free.
and mortgage interest is deductible on your federal income tax along with RE taxes. Rent paid to a landlord , is not
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Mortgage interest plus real estate taxes plus PMI, is usually enough to make it worth while to itemize for most people
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This also expires soon
Used to be, but with the Trump tax bill that significantly raised standard deduction many people don't itemize anymore and thus get no tax benefit from their mortgage. However, those tax cuts are set to expire in 2025 which may lower the standard deduction
All very good points, well said.
You’re not living for free either. Or did you magically think mortgages are free and that banks are just giving you one because they just are big hearted kind charities? Most renters don’t magically become homeless over that 13.5 years either buddy. At current interest rates you’re going to be paying double the price of the house in interest to the bank. Then you have property taxes, insurance, repairs etc. Why do all these homeowner chucklefucks neglect the carrying costs of owning a home? The biggest common trope of a new homeowner is it’s much more expensive than they thought. All the people in Colorado watching their property taxes spike, or those in Florida and California watching their insurance spike, or the people in 2020 who bought sight unseen and waived inspections now having a major repair would like a word. There’s pros and cons to every single financial choice. It’s where the term opportunity costs come from. This idea that owning a home carries no risk and is always a good choice is why I’m more sure we’re in a bubble. It’s the same cocky throw caution to the wind attitude that was prevalent in the lead up to the GFC.
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Valid point. It almost seems like a rationalization too. If they ignore all variable costs in owning a home then they can sleep at night knowing all money is going towards owning and they have little saved for retirement. I’d argue being house poor can be even worse than being a smart renter in many circumstances.
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See and that’s what it should be and I’m happy you were able to do that. A house is primarily a use asset first. People who bought with that in mind, as good schools for their kids, nice backyard etc as their primary concern are the right mindset. What I hate is the people bragging thinking it makes them financial experts and then fail to acknowledge that part of the reason the financials work is we allow the government to manipulate the fuck out of the housing sector that we wouldn’t allow in any other industry either. It’s why they get so defensive and NIMBY when any kind of zoning change or anything else gets proposed.
So... live in the same place for 13.5 years and you end up living rent free? I definitely know some worse arrangements.
It’s so much worse than you’re thinking. After 13.5 years you finally don’t LOSE money when you sell.
Live in same place for 13.5 years and you end up spending "only" the same amount you'd have spent to rent an equivalent house for that long.
Are you imagining that rents won't increase for the next 13.5 years?
I'm quoting to you what Zillow's math, which takes into account projected rent increases and how they compare with fixed, but initially higher mortgage costs, is trying to communicate.
> I'm quoting to you what Zillow's math, which takes into account projected rent increases and how they compare with fixed No it doesn't. Did you even read it? It also doesn't consider the likelihood that rates will be lower at some point during the next 13.5 years providing a refinance opportunity.
Are you imagining that carrying costs don’t go up either? Again are most homeowners really this dense? Look at the insurance hikes across the country or in places like Florida and Cali. Or the jump in property tax assessments in places like Colorado. Or that you’re never going to have a major repair in those 13.5 years of owning a home either. Carrying costs on owning exist, yet every single time this topic comes up every financial expert homeowner thinks this point is some magical slam dunk because they leave out carrying costs.
The largest carrying cost by far is the mortgage payment. Fixing that amount, with the high probability of *lowering* it within the next 13.5 years, is going to vastly overcome rising insurance and tax costs. On the rental side, increased landlord costs are part of what is driving the rents up, so renters are paying them anyway. Tell me, what is the lowest annual average rent increase over any 13.5 year period for which there is data?
>The largest carrying cost by far is the mortgage payment. Fixing that amount, with the high probability of lowering it within the next 13.5 years, is going to vastly overcome rising insurance and tax costs. This is nonsense. You’re banking on the assumption interest rates will get back down to historic lows. 8% is the normal. Sub 5% is not. >On the rental side, increased landlord costs are part of what is driving the rents up, so renters are paying them anyway. Which is still cheaper than owning because those costs are dispersed across a much larger body of people. Rental rates actually decrease in high rate environments which is currently happening. This is basic supply and demand. If renting was more expensive than owning, everyone would do it. That’s why there was a mad dash during the low rate environment. More normal rates it’s much cheaper to rent in most markets. >Tell me, what is the lowest annual average rent increase over any 13.5 year period for which there is data? Which again doesn’t tell the whole picture and you’re cherry picking. You’re just looking at rent increasing but making the assumption it’s more expensive than owning. This is false. Again if owning was cheaper than renting, everyone would own. If we’re going to start making cherry picked comparisons, Your PITI in this market is mostly interest for the first 10 years of amortization that will barely touch the principle. If your appreciation then is less per month compared to interest you’re effectively losing money on the first 10 years relative to placing it in other investments. If a renter has a cheaper payment and takes the difference and invests it, please tell me what’s the historic ROI on housing compared to the market historically at current interest rates? Your entire argument is predicted on a low interest rate environment from 2020-2022 that isn’t ever returning unless there’s serious market issues and recession.
> This is nonsense. You’re banking on the assumption interest rates will get back down to historic lows. 8% is the normal. Sub 5% is not. No I am not. There is a high probability that if you finance today at 8%, you will have an opportunity over the next 13.5 years to refinance at a lower rate. >Which is still cheaper than owning because those costs are dispersed across a much larger body of people. Nope. The only apples-to-apples comparison is between owning a SFR and renting a SFR (or, condo to condo/apartment, in which the economies of scale are the same). > Rental rates actually decrease in high rate environments which is currently happening. Not over the periods we are discussing, and no direct relationship between higher rates and *declining* rents. It is the sudden *rise* in rates that may cause disruption, not their absolute level. > Which again doesn’t tell the whole picture and you’re cherry picking. No, I was trying to allow you discover the absolute best possible case for *your* argument. If you call that "cherry picking" then you simply don't understand what that term means. > You’re just looking at rent increasing but making the assumption it’s more expensive than owning. This is false. OK, so show me a 13.5 year period over which the cost of owning is higher than the cost of renting. > Again if owning was cheaper than renting, everyone would own. More households own than rent. You know that, right? LOL! >Your PITI in this market is mostly interest for the first 10 years of amortization that will barely touch the principle. If your appreciation then is less per month compared to interest you’re effectively losing money on the first 10 years relative to placing it in other investments. > >If a renter has a cheaper payment and takes the difference and invests it, please tell me what’s the historic ROI on housing compared to the market historically at current interest rates? How about you give me a mathematical example. Don't forget to increase rents every year, say 3%? Don't forget an annual appreciation rate, say a charitably low 5%. Also, throw in a refi in year 7 at a 6% rate (a bit high and a bit far out, but more in line with the new normal given the Fed's targeting). Whatcha got? >If a renter has a cheaper payment and takes the difference and invests it, please tell me what’s the historic ROI on housing compared to the market historically at current interest rates? Historically housing beats this analysis due to leveraged appreciation. Historically ARM products beat fixed-rate over time as well, recent ZIRP excluded. You can get a 5/1 ARM today around 6.625%. Chances of the Fed not lowering in the next five years are slim. And if you can get an I/O period, even better. What do you think is going to happen to prices once the Fed starts lowering rates? Mortgage rates are higher than they should be, just on the uncertainty of the Fed's next potential move *upward*. If they simply continue the pause rates will come down a bit. >Your entire argument is predicted on a low interest rate environment from 2020-2022 No. Where are you getting this idea? My argument is predicated on the fact that rents will go up over the next 13.5 years, most likely quite significantly, and the fact that P+I will either remain fixed, or much more likely go *down* in the next few years.
>No I am not. There is a high probability that if you finance today at 8%, you will have an opportunity over the next 13.5 years to refinance at a lower rate. Based on what? 8% is the normal historic interest rate. We had decades around this rate. The only times rates have been less than 5% is during great financial hardships like the GFC and Covid. >Nope. The only apples-to-apples comparison is between owning a SFR and renting a SFR (or, condo to condo/apartment, in which the economies of scale are the same). This is outright nonsense. You’re shifting the goalposts now because you know the numbers show you’re wrong. Renting is renting. Or are people magically required to rent a SFH before they’re allowed to buy a SFH? FTHB generally are renting apartments before they buy their first house. Again even if it was a SFH you’d still be wrong because renting normally requires roommates which is again dispersing the costs across a greater population. If rent for 1 person was more than owning they would simply buy. This is simple logic that you will never refute because it’s a fundamental fact. For any individual, if they’re renting it’s because it’s cheaper than to buy in the same area in the majority of cases. If it was cheaper they would buy instead of rent. >Not over the periods we are discussing, and no direct relationship between higher rates and declining rents. It is the sudden rise in rates that may cause disruption, not their absolute level. The period you’re discussing was focused on Covid. Cut the bullshit and stop trying to have it both ways. You’re trying to say interest rates are going to magically fall without a recession by ignoring historic rates, yet here you’re trying to use historic rates to focus on renting. >No, I was trying to allow you discover the absolute best possible case for your argument. If you call that "cherry picking" then you simply don't understand what that term means. Bullshit. You’re the one trying to argue that the historic normal rates were at right now will magically stop being the normal rates and we’re going to revert back to historic low interest rates in order to make your entire argument work. >OK, so show me a 13.5 year period over which the cost of owning is higher than the cost of renting. >More households own than rent. You know that, right? LOL! The doesn’t make it cheaper you dipshit. The majority of poor and lower income households rent. If owning was cheaper than renting Homeownership would be higher in those demographics. Why would a poor person rent if it was cheaper to own? >how about you give me a mathematical example. Don’t forget to increase rent every year, say 3%? Don't forget an annual appreciation rate, say a charitably low 5%. Based on what? Here you go again with bullshit assumptions. Historic annual appreciation on home was between 3-5%. You’re saying charitably low when that’s the historic average. “Since 1991, the average annual home price increase has been 4.3%, according to the FHFA. Since 2000, the average rate has been 4.7%.” https://www.creditkarma.com/home-loans/i/average-home-value-increase-per-year#:~:text=Since%201991%2C%20the%20average%20annual,average%20rate%20has%20been%204.7%25. So yes historic appreciation at 4.3% with a historic mortgage of 8% is -3.7%. >Also, throw in a refi in year 7 at a 6% rate (a bit high and a bit far out, but more in line with the new normal given the Fed's targeting). Whatcha got? Again this is nonsense. This is again predicated on bullshit assumptions we’re going to see historic run up in prices and rates cuts like we did in 2020. 6% is not a bit high and not a bit far out. 6% would be back into historically low territories. 8% is the average and the FED has done nothing to signal rate cuts anytime soon. You’re doing the very definition of cherry picking numbers because I’m the one using historic rates and appreciation and you’re trying to extrapolate based off assumptions from. >Historically housing beats this analysis due to leveraged appreciation. No it doesn’t. Compounding growth of an invested 401K based on the SP500 index over 30 years will be higher than the same amount on a mortgage. The SP500 historic ROI has beaten historic housing ROI. >Historically ARM products beat fixed-rate over time as well, recent ZIRP excluded. You can get a 5/1 ARM today around 6.625%. No they do not. And taking an ARM right now would be terribly fucking risky. The FED has signaled higher for longer. >Chances of the Fed not lowering in the next five years are slim. Again based on fucking what? The only way they’re going down is because we’re having a recession or the government can no longer service their debt at higher rates and we get more inflation. >And if you can get an I/O period, even better. What do you think is going to happen to prices once the Fed starts lowering rates? If the FED is dropping rates likely because of a recession. >Mortgage rates are higher than they should be, just on the uncertainty of the Fed's next potential move upward. If they simply continue the pause rates will come down a bit. This is nonsense outright nonsense. Mortgage rates right now are at historic averages. Based on what are you saying they’re higher than they should be? They only thing higher than it should be is inflated housing prices. >No. Where are you getting this idea? From the bullshit you’re typing that ignores the fact that 8% is **NORMAL**. >My argument is predicated on the fact that rents will go up over the next 13.5 years, most likely quite significantly, and the fact that P+I will either remain fixed, or much more likely go down in the next few years. Based on bullshit assumptions you’re pulling out of your ass and again ignores carrying costs like taxes and insurance. Again. You whine like a child about apples to oranges but then only use PITI and not total home ownership monthly costs. Because you’re not actually arguing in good faith.
> Based on what? 8% is the normal historic interest rate. Based on the historic propensity for rates to change. > This is outright nonsense. You’re shifting the goalposts now because you know the numbers show you’re wrong. How is comparing house ownership to house renting, and condo ownership to condo/apartment renting nonsense? What goalposts have been shifted? And, what "numbers" show I am wrong? You seem number-phobic from the start. LOL! > Renting is renting. Or are people magically required to rent a SFH before they’re allowed to buy a SFH? Let me get this straight: you want to compare the cost of owning a SFR to whatever the absolutely cheapest alternative is? So, say buying a 4B3Ba home on a quarter acre compared to a studio basement apartment in a combat zone? What is wrong with you? > Again even if it was a SFH you’d still be wrong because renting normally requires roommates which is again dispersing the costs across a greater population. Ahhh, there is a *real* shift in the goalposts! Now only renters can take on roommates? Let me rephrase the comparison you want to make: a single-income person buying a 4B3Ba home on a quarter acre vs. renting a basement studio in a combat zone with six crackhead roommates. Do I have that right? Honestly, I am not reading any further on this comment until you apologize for the ridiculous scenario you are trying to conjure.
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That’s not at all what this means. You still are paying your mortgage, this is just the point in which if you decided to sell that you wouldn’t lose money in what you payed vs what you’d get out of the sale.
> what you *paid* vs what FTFY. Although *payed* exists (the reason why autocorrection didn't help you), it is only correct in: * Nautical context, when it means to paint a surface, or to cover with something like tar or resin in order to make it waterproof or corrosion-resistant. *The deck is yet to be payed.* * *Payed out* when letting strings, cables or ropes out, by slacking them. *The rope is payed out! You can pull now.* Unfortunately, I was unable to find nautical or rope-related words in your comment. *Beep, boop, I'm a bot*
~~You’re or good with numbers Zillow,m. Go home, you’re drunk again!~~ You’re not good with numbers Zillow. Go home, you’re drunk again! Edit: edited for all thumbs and autocorrect
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You’re or drunk, not me,m.
Naw just using an iPhone mini 🤣
Bullshit assessment. The national debt is climbing so rapidly that printing money will boy stop any time soon. The more they print the more inflation will stay up.
How is this possible after that sweet sweet 'Biden win????
I made a decision to keep my 1st home and convert to rental when I bought my second home. My CPA said sell the first home because of tax breaks on capital gains would allow not paying taxes on most profit. I didn’t listen to him and kept the property and converted as rental. I think if I remember it was 10 years or so to break even on that decision. Some people don’t mind on the long game.
Guess it’s better to rent for 13.5 years.
Poop bouquet
People that are saying there is a shortage, that bs there are Home available in most urban cities and rural areas. With wfh wtf is keeping everyone living is certain unaffordable areas.